Chinese Company Under Scrutiny for Evading North Korean Sanctions

FILE - Coal brought from Siberia can be seen awaiting loading onto a ship bound for China in the North Korean special economic zone of Rason. The Liaoning Hongxiang Group allegedly sold North Korea aluminum bars and chemicals that have potential military purposes.

A Chinese conglomerate with extensive North Korean ties is reportedly under investigation by authorities in Beijing and Washington for helping the Kim Jong Un government evade international sanctions and expand its nuclear weapons program.

The Liaoning Hongxiang Group operates six companies that allegedly sold North Korea aluminum bars and chemicals that have potential military purposes, 10 ships involved in the North’s banned mineral trade, including coal, and a hotel that allegedly is the headquarters for a group of North Korean cyber hackers.

“They are actually selling to North Koreans dual use goods which are explicitly forbidden by the United Nations sanctions,” said Go Myong-Hyun, a research fellow with the Asan Institute for Policy Studies in Seoul.

Shell companies

Go Myong-Hyun was one of the authors of a new report called “In China’s Shadow” which documents the involvement of the Liaoning Hongxiang Group in illicit North Korean activities along with its top executive, Ma Xiaohong, who is a member of the ruling Communist Party.

The Asan Institute for Policy Studies and C4ADS in Washington, an independent analytical group focusing on transnational security issues, developed the report that was released on Monday.

Working backwards from the United Nations list of blacklisted individuals and entities, the researchers uncovered unsanctioned Chinese private corporations, like the Liaoning Hongxiang Group, acting as shell companies or facilitators for sanctioned North Korean state enterprises.

The scale of Liaoning Hongxiang Group involvement in North Korean trade is estimated to be over $500 million and could provide the Kim Jong Un government access to large amounts of hard currency to fund its nuclear development program

One of the Chinese group’s subsidiaries, the Dandong Hongxiang Industrial Development Co., imports 99 percent of its goods from North Korea.

Custom records show that in 2015 the Dandong Hongxiang Company sent two shipments of aluminum oxide worth of a total of $253,219 to North Korea, according to the report. The U.S. Nuclear Regulatory Commission lists this chemical compound as a component used to resist corrosion in gas centrifuges during uranium enrichment.

The report also documents satellite photos of a conglomerate affiliated ship at a terminal in North Korea where coal and iron is exported, even though the trade in most minerals is banned by the U.N. sanctions imposed in March. There are, however, humanitarian exceptions in the resolution that permit the trade of coal and iron not linked to government organizations.

A Liaoning Hongxiang Group affiliate also operates the Chilbosan Hotel in Shenyang in joint venture with a North Korean state enterprise. The hotel, located near the China-North Korean border, has been alleged to be the base of operations for Bureau 121, the North’s growing cyber attack unit.

The Liaoning Hongxiang Group has extensive investments in information technology, aerial and satellite imagery, and remote sensing, according to the report.

The Chinese conglomerate’s involvement in North Korea could be just “the tip of the iceberg,” said Go. “I would like to think Chinese authorities are not paying enough attention to what is going on between the Chinese private sector and the North Korean state but if this negligence continues then I think that you can say that they are being purposeful.”

Investigations

According to a Wall Street Journal report on Monday, police in China’s northeast province of Liaoning are now investigating Hongxiang Industrial for possible involvement in “serious economic crimes.”

The Liaoning Hongxiang Group has done business with at least 15 American firms and exported at least 164 shipments to the U.S., according to the Asan report.

The U.S. Department of Justice prosecutors have visited Beijing twice in the last month to discuss possible legal action, including imposing U.S. unilateral sanctions on the organization, according to the Wall Street Journal.

Chinese authorities have also reportedly frozen some of the assets of Ma Xiaohong and her relatives.

More tests

On Monday U.S. President Barack Obama and Chinese Premier Li Keqiang agreed to increase cooperation to achieve the denuclearization of the Korean Peninsula, although Beijing seems reluctant to support tougher sanctions on Pyongyang.

U.S. officials recently reiterated Washington’s openness to dialogue if North Korea is ready to sincerely discuss denuclearization.